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Financial decisions for yourself and your family are a personal choice. How you spend your money is unique to your situation, depending on your priorities and values. You decide your comfort level with risk, personal savings, and future goals. If you make a poor decision, it does not impact the livelihood of your friends and neighbors. Even when we try our best to be rational, it is a natural tendency to let emotion influence our personal decisions. When the consequences are our own, that is acceptable.
Public policy decisions are very different. When legislators make decisions about spending tax dollars, making tax policy, or creating regulations, those choices impact everyone. Far too often policy decisions are “eminence based” rather than “evidence based”. The most coordinated media campaigns or most popular catch phrases become accepted as true, whether or not evidence to support the claim exists. Unfortunately, ideas can become popular and gain support even when evidence contradicts the premise.
My recent columns on tax incentives exemplify the need for good evidence to support policy decisions. The original legislation that created the Nebraska Advantage Act did not require reporting of the many metrics that would allow evaluation of the intended impact of the programs. Supporters and opponents alike make claims about the value of the Nebraska’s tax incentives. In the absence of evidence, it is not credible to say the programs are successful economic tools, just as it is not credible to say they have not been.
Despite common political strategies that use fear, anecdote, and false dichotomies to promote a particular policy, sound governance should use evidence to support decisions that impact the daily lives of Nebraskans. Many popular policies sound reasonable, yet the evidence does not support the claims made. One of the most common arguments in support of expanding Medicaid eligibility is to reduce the use of expensive emergency room services for non-emergency care. The state of Oregon used a lottery system to expand Medicaid to a randomized group of working adults. Use of Emergency Room services increased in those newly covered, versus the same population without Medicaid. Expanding Medicaid had the opposite effect on costs. Nevertheless, the claim continues in spite of the evidence.
Studies examining the long term impact of early childhood education programs have provided evidence that contradicts the popular claims. Research at Vanderbilt University examining Tennessee’s universal public early childhood program and data from Head Start have shown the impact of early childhood education programs, when applied broadly, vanishes in early elementary school. Nevertheless, data from boutique programs are used to advocate for additional investments, while ignoring the more comprehensive evidence.
Cost and benefit analysis of government programs is essential for judicious use of tax dollars. All too often it is assumed that more money spent equates to equal or greater outcomes. There is a basic economic principle that states “there is no such thing as a free lunch”. There is a cost associated with every dollar spent, including trade-offs to other programs. When making decisions to spend taxpayer money, lawmakers have a responsibility to make decisions based on data that supports their decision.
There is no evidence that supports the claim that more dollars spent on education equates to better learning outcomes. The rate of return diminishes with additional investment. Beyond a basic level of funding, there is not compelling evidence to support the claim that students perform better when more money is spent. However, education spending is frequently used as a metric to reflect educational quality.
Using evidence and data to make good policy decision does not mean they are devoid of compassion. Emotional stories and anecdotes are powerful, but they are not evidence. Public decision making is distinct from private choices. The careful balance between the individual needs and public good can be easily influenced by cognitive biases. Good data and careful standards of evidence provide the foundation for sound public policy.